With most of the Singapore-listed blue chips reporting their earnings for 4Q15, the earnings season for Singapore companies is done and dusted. But how did these SG-listed stocks fare in the past quarter? To sum it all up, the appropriate word to use is “poor”.

2015 STI Performance: Margins Squeezed but Number of Loss-making Firms Lower

Singapore corporate net margin fell to 3.6 percent in 4Q15, coming close to the global financial crisis low of 3.5 percent in 4Q08. However, most of the fall in net margin could be attributed to significant provisions by commodity-related firms. Excluding those commodity-related firms, the net margin would have weakened by 0.3 basis points quarter on quarter.

Loss_Making_Companies

Reflecting the breadth in the fall in corporate profitability, 28 percent of firms on the SGX recorded losses in 4Q15, just slightly below the global financial crisis level of 35 percent in 4Q08 but above the Asian Financial Crisis 4Q02 level of 22 percent. Interestingly, the number of loss-making firms in the real estate, financials, and telco sectors is significantly lower.

2015 STI Performance: Dividends Under Pressure

Dividends have also been under pressure due to the greater stress in corporate profitability. According to Credit Suisse estimates, total dividend payout by companies in STI is expected to go down 1.5 percent from the peak of $15.6B in 2011. Among the 22 stocks in the STI that have a December year-end, eight companies lowered their dividend per share in 2015.

2016 Forward Outlook: Market Consensus Looks Downbeat

Moving forward, consensus earnings have been further cut. The market now expects MSCI Singapore to see earnings per share growth of merely 0.3 percent in 2016. Singapore continues to be performing worse than the region in terms of earnings momentum with earnings cuts of 5.4 percent year to date. This is more than the Asia ex-Japan average of 5.2 percent.

In particular, the largest earnings cut year-to-date were seen in the industrials and financials sector.

On the other hand, earnings have been relatively resilient in the telecommunication and real estate sectors. Both the consumer staples and consumer discretionary sectors have seen a slowdown in earnings downgrades following significant cuts in 2015.

Investors Takeaway:

In its model portfolio, Credit Suisse is overweight on Real Estate, Transportation, and Healthcare stocks.

CS_Model_Portfolio1. ComfortDelgro: Diversified Portfolio With Dominance In The Market

In the Transportation sector, ComfortDelgro is Credit Suisse’ top pick. The company is expected to benefit from near-term structural reforms and long-term secular growth. Credit Suisse also sees strength in ComfortDelgro from its well-diversified portfolio, dominant market position in the sub-segments it operates in and proven track record of sustainable profit and dividend growth.

ComfortDelgro: BUY, TP $3.70

2. City Development: Low Price To RNAV Value Makes It Attractive

In the Real Estate sector, City Development remains as the long-term top pick for Credit Suisse. The market is forecasted to focus on stocks that could unlock property values and narrow discounts to physical assets, i.e. low price to RNAV ratio.

Management’s AUM target of $5B for 2018 implies that another $2.4B of assets could be monetised over the next three years. This could aid earnings and narrow its trading discount to RNAV. Historically, City Development booked over $300M gains from each deal completed in the past two years. This means that its next upcoming deal could be a catalyst for EPS upside. Credit Suisse foresees the high-end residential market to be its next source of opportunity as time pressure from looming Qualifying Certificate deadlines force its hands.

CDL: BUY, TP $12.00